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Oil Prices Edge Lower Following Surge on Large Gasoline Draw

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Oil prices edged lower on Thursday after surging on Wednesday following a stronger than expected draw in gasoline stocks.  Despite continued increases in crude oil stocks, prices of WTI surged above $50 and are poised to test the March highs at $52.

On Wednesday the Department of Energy released its inventory report.  According to the EAI U.S. commercial crude oil inventories increased by 4.8 million barrels from the previous week. At 471.4 million barrels, U.S. crude oil inventories are at the highest level for this time of year in at least the last 80 years. Gasoline inventories decreased by 4.3 million barrels last week, but are well above the upper limit of the average range. Distillate fuel inventories increased by 1.3 million barrels last week and are in the lower half of the average range for this time of year.

Total products demand over the last four-week period averaged 19.1 million barrels per day, up by 2.7% from the same period last year. Over the last four weeks, gasoline demand averaged about 9.0 million barrels per day, up by 1.9% from the same period last year. Distillate demand supplied averaged over 3.8 million barrels per day over the last four weeks, up by 1.3% from the same period last year. Jet fuel demand is up 5.9% compared to the same four-week period last year.

The oil-to-gasoline ratio of 2.06, which is gasoline in storage relative crude oil in storage for the week ending March 27 is the highest level recorded this decade, and the first time that oil supplies have been more than double gasoline supplies. An extremely high oil-to-gasoline ratio such as this suggests that there is strong demand for finished petroleum products, but raw materials are being insufficiently converted to these products, and are being allowed to accumulate in storage. As the calendar moves into driving season, the demand for gasoline will surge, and drive up the price of products.

The recently weakness in the US dollar has given crude oil prices a shot in the arm.  Since crude oil is priced in dollars, it generally faces headwinds as the greenback gets stronger.  Wednesday’s softer than expected ADP private payroll report along with a weak ISM manufacturing report, allowed the dollar to drift lower buoying crude prices.

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